01 April 2014

Graham Bishop's Blog: ECON Hearing on "Final Report of Expert Group on Debt Redemption Fund and Eurobills"

This afternoon, ECON devoted two hours to analysing the Expert Group’s Report. My personal statement to the Committee is here and it includes the brief details of how the plan for a Temporary Eurobill Fund (TEF) would work. Earlier papers contain more details of the concept but the Expert Group has helped me refine the ideas very substantially and create an operational legal framework.

The Group laid out sound reasons why action is in the general interest of all EMU participants today; the objectives of joint issuance; and the risk of moral hazard. However, we should be under no illusions about the existence of moral hazard amongst the nations of Europe. The 1957 Treaty of Rome inter-linked the economies, the 1987 Single Market Act was probably the point of no-return and if not, the 1999 introduction of the single currency certainly was. The 2010 Greek crisis demonstrated the reality of the existing moral hazard and the subsequent revolution in economic governance processes illustrates the magnitude of the euro area’s attempt to manage the risk. The ESM simply calibrates the financial risks already involved when things go wrong.

My plan for a Temporary Eurobill Fund is a financial complement to the economic governance measures that are trying to control the direct economic risk. If a state fails to manage its economy in a sustainable way, there will be financial spill-overs in a `single financial market’ - as the natural result of the economic failure rather than any attempts by fellow euro area members to minimise their direct financial exposure.

Naturally market participants have a view about the arrangements that will be ideal for them, but Parliaments must - absolutely properly - protect the long-run interests of their electors. The art of the possible is to find an acceptable 'middle way'. So I discussed the aspects of the Group's analysis that illuminate how a TEF could provide such a middle way.

“I believe that a plan along the lines of the Temporary Eurobill Fund (TEF) is completely feasible - both as a simple insurance policy against future storms that remain all too likely, and as a series of small, but reversible, steps towards deeper integration.”

Next Steps – after the Report and ECON Hearing

In my view, it is “appropriate for the Commission to make proposals before the end of its mandate”. However, being realistic about the remaining life of this Commission and the inter-governmental nature of a key part of the proposal, perhaps this Seventh European Parliament should pass on a call for a Temporary Eurobill Fund to be part of the report that the two Presidents – van Rompuy and Barroso – are tasked with delivering to the October European Council.  

Judging by the questioning from MEPs, this ECON feels quite proprietorial about the Group’s work as it was only set up at their insistence. Having heard that steps can be taken quickly, I can imagine that the Parliament will push the Commission for a policy follow-up later this year. Part of that must be a clear elaboration of the legal reasons why an inter-governmental agreement is needed as it was easy to pick up the concerns about the way the Single Resolution Fund had come into existence.

But President Barroso was absolutely correct to say – in his response to the Group’s Report that “The Commission will carefully study the report and decide how to follow it up in due course. But before we do, we need to have a democratic debate on these ideas with citizens, governments and the European Parliament. The upcoming European elections are a prime opportunity to discuss what kind of Union we really want."

So the first step is for the people of Europe to send the signal – by their votes in the Parliament election – that they wish to continue down the integration road. Then the next Commission can develop a fully–fledged plan – under the auspices of the Eighth Parliament – and be ready to launch it if conditions are right.

Rolling blog

Graham Bishop - Consultant on EU Integration - Political, Financial, Economic, Budgetary

© Graham Bishop